This article exemplifies why financial illiterates should not write about finance.
1. Black Rock is a publicly traded ETF fund manager. It's the largest fund manager in the world with over $6tn AUM. If you don't know what AUM means, don't write about finance. Retail investors can't invest in hedge funds, which are only for accredited investors. If you don't know what that means, it means you aren't one and shouldn't write about finance and forex.
2. Correlating forex rates with military power is beyond absurd. Here's how: The DM/$ rate varied from 1.43 to 3.40/$ with no change in the decrepit nature of Germany's NATO-protected military power. The JPY/$ rate varied from 75 to 125/$ in 2012-2016 with zero change in peace constitution Japan's military power, despite Shinzo Abe's fantasies of reviving Japan's military. Here's the history behind why Shinzo Abe was my best forex friend from 2013-15 when I shorted 20m JPY: https://medium.com/datadriveninvestor/the-smart-money-studies-history-438531cdb6c
The CNY/$ rate has dropped as China's military has grown in size. Of course, the CNY is a capital controlled managed currency, which is why it's no threat to the $ as a reserve currrency.
3. The US $ declined by roughly 50% from the superdollar peak of the summer of 1985 to its 1991 low, when US superpower status peaked as the USSR broke up. I shorted the $ in 1985 by buying Europe and Japan stock funds, which paid for two stays in the south of France to learn French in 1985 and 1986. Vive la chute du $!
4. The $ is the world's reserve currency for the same reason the Dutch Guilder and the GBP were: the bond market. Deep and liquid financial markets backed by rule of law bond covenants create reserve currencies. That's why Napoleonic France's currency never had reserve currency status and why the CNY still doesn't. Only open economies without capital controls that allow foreign companies to hold that currency risk-free for frictionless overseas transactions create reserve currency status. Here's why, even in Yiwu, China, the $ dominates:
"Limited offshore reserves and China’s stringent capital controls will limit the renminbi’s adoption. “The institutional support for renminbi to go global is not strong enough,” said Tan Xiaofen, a finance professor at Beihang University in Beijing. To spur greater global use, China would need to relinquish control over the renminbi’s exchange rate and drop capital controls, allowing the currency to circulate freely, as with the dollar. But policymakers prize those controls and have shown little willingness to give them up.
Many foreign central banks have stockpiled their renminbi reserves for emergencies such as paying down foreign debt, according to a Beijing-based adviser to the People’s Bank of China. “Some policymakers in developing countries don’t want to make full use of offshore renminbi even when local merchants are keen to do so,” the person said.
The lack of renminbi settlement abroad means many Yiwu merchants use underground money shops, which exchange currencies such as West Africa’s CFA franc for renminbi at low cost, to facilitate trade.
Wu, the furniture exporter, said a quarter of his renminbi sales were paid out through third-party brokers. Such arrangements carry their own pitfalls. Authorities have frozen tens of thousands of bank accounts belonging to Yiwu merchants in recent years over money laundering risks, according to local lenders and state media reports.
Other obstacles are more prosaic. Back at his stall in the giant Yiwu International Trade City, Zhu, the socks exporter, said he stopped seeking renminbi payments from an Ethiopian client this year because the lack of currency reserves meant he had to wait a long time to obtain renminbi. “I am not going to wait for an extra three weeks to receive renminbi when I can get paid in dollars right away,” he said."
This is just basic financial literacy that Mr. Dunn has yet to acquire.
As a retired investments prof, I know from seeing my students play a simulated trading game that there's smart money and there's dumb money. Mr. Dunn is the dumbest of dumb money. He will, of course, not put his money where his Russia-cheerleading for Ukrainian military failure mouth is and short the $ with his real money. His readers will never see screen shots of his forex trades backing up his articles.
He needs to read How Not To Be Dumb Money: The $ has been dropping since it peaked at $.965/euro because the market forecasts lower US growth and resulting contraction in real interest rates despite high short term real rates. That's the reason for the inverted yield curve with 10 year t-bond rates lower than short term t-bill rates.
